This case study highlights the importance of small business owners understanding the true costs of running their business and factors influencing their profit and cash flow. It also provides guidance on how to structure funding arrangements for unique business circumstances and how to use insurance as a means of protecting business income.

Background

A wholesale and retail business that was experiencing large fluctuations in its sales, profits and cash flow. The business supplies goods to energy and rural businesses and is required to carry large stock holdings and significant credit accounts. Heavy rains also caused damage to the business’s stock and premises and it was unable to supply refrigerated goods for a period of 2 months.

The owners, William and Laura, wanted advice on how to improve their profit, better manage their cash flow and prevent the loss of income from future unplanned events.

 

Client Issues

  • Unsure of breakeven saleslevel
  • Not understanding the benefits of ratio analysisand budgeting
  • Not enough workingcapital
  • Inadequate businessinsurance

 

How Resolved

With Support from their business adviser, William and Laura completed the following

1.    Breakeven Sales - a breakeven sales analysis enabling them to pin point the minimum sales required to cover their business expenses.

Total fixed business expenses $350,000
Average gross profit margin 55%
Minimum weekly sales required $12,250

2.    Improving Profit - a series of key profit ratio calculations to help better manager their stock. This included Gross Margin Return on Inventory and Gross Profit Margin. It was agreed William and Laura would upgrade their stock management system to improve their gross profit margin and to reduce shrinkage.

3.    Improving Cash Flow - a series of key cash flow ratio calculations. This included Account Receivable and Stock Turnover and a Flow of Funds Statement. It was agreed William and Laura would prepare a cash flow budget every year to determine their funding requirements.

4.    Improving Cash Flow - William and Laura’s Lending Adviser was able to negotiate an extension on their overdraft limit to meet their working capital requirements. William and Laura’s General Insurance Adviser also purchased new BusinessDisruption Insurance to protect their business from a loss of future income.

 

Client Process

William and Laura completed this work through their Business Trading Package with Provident Business Solutions. To find out more about our Business Trading package and how we can produce efficiencies and savings in your business, contact Trent on 9442 0050 or trent@providentbusiness.com.au